Identify how each of the following separate transactions affects financial statements. For the balance sheet, identify how each transaction affects total assets, total liabilities, and total equity. For the income statement, identify how each transaction affects net income. For the statement of cash flows, identify how each transaction affects cash flows from operating activities, cash flows from financing activities, and cash flows from investing activities. For increases, place a “+” in the column or columns. For decreases, place a “−” in the column or columns. If both an increase and a decrease occur, place “+/−” in the column or columns. The first transaction is completed as an example.
Nikolas Benton launched a new business, Benton's Maintenance Co., that began operations on June 1. The following transactions were completed by the company during that first month.
Arrange the following asset, liability, and equity titles in a table like Exhibit 1.9: Cash; Accounts Receivable; Equipment; Accounts Payable; Common Stock; Dividends; Revenues; and Expenses.
Show the effects of the transactions on the accounts of the accounting equation by recording increases and decreases in the appropriate columns. Do not determine new account balances after each transaction. Determine the final total for each account and verify that the equation is in balance.
Prepare a June income statement, a June statement of retained earnings, a June 30 balance sheet, and a June statement of cash flows.
Problem 1-8B
Analyzing transactions and preparing financial statements
Arrange the following asset, liability, and equity titles in a table like Exhibit 1.9: Cash; Accounts Receivable; Office Supplies; Office Equipment; Excavating Equipment; Accounts Payable; Common Stock; Dividends; Revenues; and Expenses.
Use additions and subtractions to show the effects of each transaction on the accounts in the accounting equation. Show new balances after each transaction.
Use the increases and decreases in the columns of the table from part 2 to prepare an income statement, a statement of retained earnings, and a statement of cash flows—each of these for the current month. Also prepare a balance sheet as of the end of the month.
Analysis Component
Assume that the $14,600 purchase of excavating equipment on July 3 was financed from an owner investment of another $14,600 cash in the business in exchange for more common stock (instead of the purchase conditions described in the transaction). Explain the effect of this change on total assets, total liabilities, and total equity.
Nico Mitchell started a new business, Financial Management, and completed the following transactions during its first year of operations.
N. Mitchell invests $70,000 cash and office equipment valued at $12,000 in exchange for common stock.
The business purchased a $141,000 building to use as an office. The company paid $15,000 in cash and signed a note payable promising to pay the $126,000 balance over the next ten years.
Purchased office equipment for $11,000 cash.
Purchased $600 of office supplies and $1,300 of office equipment on credit.
Paid a local newspaper $500 cash for printing an announcement of the office's opening.
Completed a financial plan for a client and billed that client $2,400 for the service.
Designed a financial plan for another client and immediately collected a $4,000 cash fee.
Paid $3,325 cash for dividends.
Received $1,750 cash as a partial payment from the client described in transaction f.
Made a partial payment of $700 cash on the equipment purchased in transaction d.
Paid $1,750 cash for the office secretary's wages.
Required
Create a table like the one in Exhibit 1.9, using the following headings for the columns: Cash; Accounts Receivable; Office Supplies; Office Equipment; Building; Accounts Payable; Notes Payable; Common Stock; Dividends; Revenues; and Expenses.
Use additions and subtractions within the table created in part 1 to show the dollar effects of each transaction on individual items of the accounting equation. Show new balances after each transaction.
Once you have completed the table, determine the company's net income.
AT&T and Verizon produce and market telecommunications products and are competitors. Key financial figures (in $ millions) for these businesses over the past year follow.
Compute return on assets for (a) AT&T and (b) Verizon.
Which company is more successful in the total amount of sales to consumers?
Which company is more successful in returning net income from its assets invested?
Analysis Component
Write a one-paragraph memorandum explaining which company you would invest your money in and why. (Limit your explanation to the information provided.)
Problem 1-11B
Determining expenses, liabilities, equity, and return on assets
Carbondale Company manufactures, markets, and sells ATV and snowmobile equipment and accessories. The average total assets for Carbondale is $243,000. In its most recent year, Carbondale reported net income of $62,500 on revenues of $473,000.
Required
What is Carbondale Company's return on assets?
Does return on assets seem satisfactory for Carbondale given that its competitors average a 10% return on assets?
What are the total expenses for Carbondale Company in its most recent year?
What is the average total amount of liabilities plus equity for Carbondale Company?
A start-up company often engages in the following activities during its first year of operations. Classify each of the following activities into one of the three major activities of an organization.
Identify in outline format the three major business activities of an organization. For each of these activities, identify at least two specific transactions or events normally undertaken by the business's owners or its managers.
